Child Trust Funds a victim of cuts

Child Trust Funds are being axed by Chancellor George Osborne to save money

Child Trust Funds are to be scrapped in a bid to save £320 million, the Government has confirmed as part of £6 billion of cuts aimed at tackling Britain's deficit.

The coalition plans to introduce secondary legislation cutting the money children receive at birth from £250 to £50 from August 1, with children from lower income households receiving £100, down from £500.

Children will no longer receive an additional payment when they are seven, and all payments will be stopped from the beginning of next year, following the introduction of primary legislation.

The Treasury said it would continue to make additional contributions to disabled children this year, but from 2011/12 the money would be redirected to provide respite care for them.

Child Trust Funds (CTFs) were introduced by the previous government to encourage parents to save for their children and to ensure all youngsters had an asset when they reached 18.

They were launched for children born on or after September 1 2002, and as well as receiving the Government vouchers, parents, friends and relatives were able to save up to £1,200 a year into the funds.

Chancellor George Osborne and his Lib Dem deputy at the Treasury David Laws made the announcement. Mr Laws said it was a "deception" to suggest young people were being made richer by the scheme.

He said: "I know that this will be a disappointment to some parents but we need to be honest about what we are doing. By ending payments into this scheme, we will also save the £5 million annual cost of administering it."

But Brian Morris, head of savings at the Building Societies Association, said: "This is disappointing as CTFs are a very good way of getting children into the habit of saving. It will hit hardest those on lower incomes since higher income families are more likely to save without the incentives that CTFs offer."

Andrew Hagger, of financial website Moneynet.co.uk, said: "Whilst there is undoubtedly an urgent need to reduce the budget deficit, at the same time, we should not lose sight of the importance of encouraging the savings habit in the UK."